The Driven Fiduciary

I keep a close watch on this heart of mineI keep my eyes wide open all the timeI keep the ends out for the tie that bindsBecause you're mine, I walk the line

This morning the S&P500 entered the trading day down 19.78% from its bull market peak on September 20th 2018. This now marks the 5th time in history that the S&P dropped more than 19% from its peak yet stopped before dropping 20%. Now, what is so magical about this 19% number? Because it is just shy of 20%.

20% is basically the agree’d upon amount that the market would need to drop to be considered a “bear market.” At a 19.78% drop, we have again come right up to the line to where we would classify entering a bear market. It is important to note that there is certainly a historical precedent for such similar “close call,” or “right up to the line” situations. According to Bespoke, there have been 13 bear market declines of 20+ since WW2. However, there has also been 18 instances of a 19%+ decline, which is right where we ended up this morning. There has been 5 instances where we broke through a 19% drop but did not hit 20%. On every such occasion, the S&P500 went on to make a new bull market high.

This is not to say that our current drop of 19.78% couldn’t end up tipping over 20 and entering into a bear market. This is however pointing out that there is certainly historical precedence for this leading to new highs.

Regardless, it is moments like this where we like to remind our clients that this is why we invest for the long term. Despite the low volatility we have enjoyed over the last 10 years, months like December are good reminders that the market does in fact move in both directions. Stay calm, stay invested, and stay committed.

The Driven Fiduciary

James f. chapman, awma

James F. Chapman AWMA®, is a Wealth Advisor at Clearwater Capital Partners. After completing six consecutive years in the firm’s analyst residency program, James has experienced considerable development in his knowledge of Wall Street and in the disciplines of wealth management.

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